You are considering a safe investment opportunity that requires a $1,470 investment today, and will pay $940 two years from now and another $570 five
You are considering a safe investment opportunity that requires a
$1,470
investment today, and will pay
$940
two years from now and another
$570
five years from now.
a. What is the IRR of this investment?
b. If you are choosing between this investment and putting your money in a safe bank account that pays an EAR of
5%
per year for any horizon, can you make the decision by simply comparing this EAR with the IRR of the investment? Explain.
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Authors: George M. Constantinides, Milton Harris, Rene M. Stulz
1st Edition
0444535942, 978-0444535948
